The Fat Shack Makes The Sharks HUNGRY! | Shark Tank US | Shark Tank Global

Summary

In this Shark Tank pitch, Tom Armeny and Kevin Gabauer introduce *Fat Shack*, a restaurant chain offering indulgent, over-the-top sandwiches filled with comfort foods. With $22 million in sales and 11 locations, they seek a $250,000 investment for 7.5% equity to fuel further expansion. Despite concerns about the health implications of their concept, the Sharks are impressed by the business’s growth potential. After some negotiations, Mark Cuban offers $250,000 for 15% equity, which the founders accept, sealing a deal to expand the brand nationwide.

Takeaways

• 😀 The founders of Fat Shack, Tom Armeny and Kevin Gabauer, are seeking a $250,000 investment for a 7.5% stake in their fast-food business.
• 🍔 Fat Shack specializes in indulgent sandwiches made with combinations of fried foods like French fries, chicken fingers, mozzarella sticks, onion rings, and jalapeno poppers.
• 💡 The company began in 2010 when Tom Armeny used a bagel shop’s equipment to run his restaurant late at night, initially opening with less than $5,000.
• 🌱 Since then, Fat Shack has grown to 11 locations across three states, with 9 of them being franchises and 2 owned by the founders themselves.
• 💰 The business has generated $22 million in total sales, with a projected $5.7 million in systemwide sales last year.
• 🔑 The founders' revenue model is based on franchise fees, which are $118,000 per location, with a 6% royalty fee from franchisees.
• 📈 Each store generates between $40,000-$45,000 in royalty revenue annually, and franchisees are expected to earn a 10% profit margin.
• 🏠 The cost to open a Fat Shack location ranges from $75,000 to $100,000, with some units being funded by the company for employees who rise through the ranks.
• 👨‍🍳 Over half of Fat Shack’s franchisees started as employees, with many coming up through the system as delivery drivers.
• 💸 Investors express concern about the business' profitability, with offers ranging from $250,000 for 25% down to 17%, highlighting the risk involved in the investment.
• 🤝 The founders eventually agree to a deal with Mark Cuban, accepting $250,000 for a 15% stake in the company, despite concerns over profitability and long-term growth.

Q & A

What is the main concept behind Fat Shack?

Fat Shack is a fast-food restaurant chain specializing in indulgent and calorie-rich comfort food, particularly unique sandwiches packed with fried items like French fries, mozzarella sticks, chicken fingers, and more.

How much investment are Tom and Kevin seeking, and what equity are they offering?

Tom and Kevin are seeking a $250,000 investment for a 7.5% stake in Fat Shack.

What is the significance of their food offerings in the context of the business?

Fat Shack's food offerings are unique in that they combine multiple indulgent, deep-fried foods into a single sandwich, appealing to customers seeking extreme comfort food and large portions.

How many locations does Fat Shack currently have?

Fat Shack currently has 11 locations, with 9 of them being franchises.

How much revenue did Fat Shack generate in total sales since its inception?

Since its founding in 2010, Fat Shack has generated over $22 million in total sales.

What were Fat Shack's systemwide sales in the most recent year?

In the most recent year, Fat Shack achieved systemwide sales of approximately $5.7 million.

What is the franchise fee for opening a Fat Shack location?

The franchise fee for opening a Fat Shack location is $118,000, with a 6% royalty fee taken from the sales.

How do Tom and Kevin describe their ideal franchisee?

Tom and Kevin are looking for 'owner-operators' who are highly motivated and are often people who started within the company, such as delivery drivers who work their way up.

What is the concern raised by the Sharks about the investment opportunity?

The Sharks are concerned about the slow return on investment, as the business model is relatively high-risk with modest profits in the short term. They also question the business’s reliance on indulgent, unhealthy food.

What was the final deal agreed upon by the Sharks?

The final deal was $250,000 for a 15% equity stake in Fat Shack, with Mark Cuban ultimately taking the deal after some negotiation on the percentage offered.